The Empirical Dynamics of Comparative Advantage

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How do the characteristics of specific industries shape the way international trade flows across national borders? Are changes in global trade dynamics at least partly the result of how industry productivity evolves over time in specific industries? Data show that across the globe, any country's success in international trade at any moment in time is concentrated in just a few products. However, those export products change over time; the top export goods this year will most likely not be the top export goods in the future. Are these two persistent features of country export success due to the same process? This project uses data from five decades of exports and imports between a large group of countries to test hypotheses about how industry characteristics determine global trade patterns. The research will help us understand the forces responsible for the rapid growth of emerging economies, and will help us to predict future trade flows.The research team develops an empirical framework to characterize the dynamics of country export performance, and will apply the framework to five decades of disaggregate data on consistently defined trade flows that include all merchandise sectors and a large set of countries conducting the bulk of global trade. The diffusion they specify and estimate with a novel procedure combines stochastic growth in comparative advantage (capturing random product innovations or discoveries of new capabilities) with the dissipation of existing advantages (capturing diminishing returns or resource depletion). The team will develop micro-foundations via a model of innovation and resource discovery, develop a multivariate stochastic process that allows for cross-country and cross-industry linkages in export growth (eg, linkages due to global productions networks), and explore the connection between export growth and changes in country characteristics.